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RBI's tightening of key rates would contain growth and investments, resulting in a de-rating of stocks, said market experts.
The Street has been expecting tightening up to 100 basis points in key rates in a phased manner in FY 2012. Expectation of a margin squeeze due to an increasing cost structures fuelled by supply-side constraints is the crux of the problem, said experts.
Experts said that it would make sense to move into short-term fixed income as interest rates move up. “We would recommend investors to invest in short-term funds as there is lack of clarity on long-term rates due to oil, inflation and monsoon,” said Mr Mahhendra Jajoo, ED and CIO-Fixed Income, Pramerica Mutual Fund.
The Street is feeling nervous due to recent global developments. Ficci's surveys have pointed towards weakening of business confidence and have projected a moderation in industrial growth due to hardening cost of capital and raw material prices.
On the real estate front, sales in February 2011 (4,716 registrations) in Mumbai saw a 22 per cent decrease year-on-year, while lease volumes showed a 20 per cent jump during the same period (8,055), clearly indicating a demographic shift towards affordability along with an expectation of an impending price correction and hence the deferral in property purchases, said Mr Kejal Mehta and Mr Dhrushil Jhaveri of Prabhudas Lilladher in their report.
“Food inflation may not come down in a hurry,” said Mr Aneesh Srivastava, CIO-IDBI Federal Life Insurance. “With global oil and commodity prices seeping into core inflation and manufacturing inflation, RBI would continue to hike rates as least by 50 basis points more in the coming months in a phased manner.”
The government should now focus on addressing supply-side constraints and improve the investment climate said experts. “With concerns such as inflation, fiscal deficit, current account deficit and fuel prices keeping the RBI busy, capital formation in the economy will remain subdued and inflation will come down in FY12,” said Mr Kislay Kanth, Head of Research-MAPE Securities.
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